Pending home sales retreated in August, declining 1.4% despite analyst expectations of a 0.5% gain.

Pending home sales had been on a climb in the first half of the year, correctly signaling a subsequent climb for final sales of existing homes.

The index dropped 1.4% to 109.4 in August from 110.9 in July but is still 6.1% above August 2014. The national median existing-home price is expected to increase 5.8% in 2015 to $220,300.

But the index began to stall going into the summer, this time correctly signaling August's drop in existing home sales. A modest increase in the West was offset by declines in all other regions.

On an annual basis, pending home sales remained at a healthy level of activity. The index has risen year-over-year for 12 consecutive months, according to the National Association of Realtors.

Lawrence Yun, NAR chief economist, says even with the modest decline in contract signings, demand continues to outpace housing supply and elevate price growth in numerous markets.

“Pending sales have leveled off since mid-summer, with buyers being bounded by rising prices and few available and affordable properties within their budget,” he said. “Even with existing-housing supply barely budging all summer and no relief coming from new construction, contract activity is still higher than earlier this year and a year ago.”

Yun said he thinks sales in the coming months should be able to roughly maintain their current pace.

But importantly, he warns that there are looming speed bumps that have the potential to impact housing.

“The possibility of a government shutdown and any ongoing instability in the equity markets could cause some households to put off buying for the time being,” Yun said. “Furthermore, adapting to the changes being implemented next month in the mortgage closing process could delay some sales.”

Yun forecasts total existing-home sales this year to increase 7.0% to around 5.28 million, about 25% below the prior peak set in 2005 of 7.08 million.

The PHSI in the Northeast fell 5.6% to 93.3 in August, but is still 8.9% above a year ago. In the Midwest the index inched down 0.4% to 107.4 in August, and is now 6.5% above August 2014. 

Pending home sales in the South declined 2.2% to an index of 121.5 in August but are still 4.1% above last August. The index in the West rose 1.8% in August to 104.9, and is now 7.6% above a year ago.